Empirical Evidence on the Functional Relationship Between Audit Planning and Total Audit Effort

In this study we examine the relation between the extent of audit planning and total audit effort. While it is well recognized in the literature that the effectiveness and efficiency of an audit is dependent upon audit planning, no empirical evidence has been presented that demonstrates whether audit planning in fact leads to a more effective or efficient audit. A modified version of the basic audit pricing model used throughout the literature introduced by Simunic (1980) is used to examine the relationship between an independent variable measuring the extent of audit planning and a dependent variable measuring total audit effort, expressed in hours. We provide evidence that audit planning reduces total audit effort and is subject to diminishing returns. This outcome appears to support the contention with respect to the extent of the tradeoff between audit planning and audit verification hours when audit effectiveness is taken into consideration.